Budget 2012 – Good for Bioenergy?

Despite the general wielding of the axe to public expenditure, the 2012 budget was fairly positive for the bioenergy sector. For starters, the VAT rate on energy remained at 13.5%, whereas all items charged at the Standard rate experience a defacto 2% price hike.

Mainly due to lobbying of the Irish Bioenergy Association and its members, a VAT anomaly that unfairly penalised district heating was adjusted. Prior to the budget, Revenue had issued an opinion that the sale of hot water was at the Standard rate, but a welcome announcement in the budget was to reduce this to the 13.5% rate.

The cost to the exchequer of this measure is minimal as to-date, district heating, which is widely adopted in continental Europe is non-existent in Ireland (with some notable exceptions).

This announcement effectively reduces the cost of district heating to potential end users and levels the playing field in terms of choosing their method of heat supply. District heating is closely associated with biomass heating, as it allows multiple consumers to take advantage of lower cost fuel, while also dividing the high initial costs of installing biomass technology.

A surprising aspect of this announcement is that Revenue communicated during the year that it would be contravening EU tax harmonisation agreements to reduce the VAT rate on district heating.

Carbon taxation

Carbon tax, vociferously opposed by farmers and road users alike, is a blunt but highly effective instrument in gradually shifting consumers to renewable fuels, such as wood chip, wood pellets or transport biofuels.

The carbon tax was increased from €15 to €20 per tonne of CO2 equivalent in the budget. The net effect of this was to add 1% to the cost of petrol and auto-diesel and almost 2% to home heating oils and natural gas. Biomass fuels are exempt from carbon tax as they are CO2 neutral (although this status was achieved for biofuels only after previous lobbying efforts!). The result is to improve the competitiveness of biofuels compared with fossil fuels. However the most carbon intensive fossil fuels – Coal and peat did not have increases in carbon tax. Meanwhile we may also note that the carbon tax in Sweden is currently €90/t of CO2 equivalent.

Energy crop establishment grants

Bioenergy crop grants were suspended during 2011 but their renewal was announced by the Department of Agriculture with €1.6m set aside to allow 50% funding contribution to farmers ready to invest in energy crops. This will facilitate the planting of up to 1,400 ha of energy crops, although farmers now have only until the 18th January to make a decision to plant next year. 

IrBEA and its members have communicated extensively with government departments on this topic and believe the industry needs to see a multi-year commitment in place to give investor confidence and stability to the sector. On the power generation side, it has been necessary to put guaranteed feed in tariffs in place for 15 years to allow projects to proceed. A major issue facing any Bioenergy project now is confidence in new sources of supply (such as energy crops) coming on line to provide a competitive and secure feedstock.

The crop establishment grant is welcome, but there are a number of other policy changes required to get 1,400 ha per year planted, never mind the minimum 10,000 ha/year that need to be planted to supply all the projected biomass required by 2020 to meet national renewable energy targets.

Forestry

Forestry escaped relatively unscathed in the budget, with a budget of €112m, similar to 2011. This will support planting of up to 7,000 ha/year. This falls well shy of the national afforestation target of 15,000 ha/year, but the reality is that even with budget in place these levels would not be achieved. The roads scheme has also been maintained, which is critical for forest thinnings to be made available to Bioenergy projects and other fibre users.

Extension of corporate tax relief

A revenue scheme to provide tax relief on up to €1m per project of external capital has been extended for three years. Again this is something the Irish Bioenergy Association made representations to the Department of Finance on during the year. At the standard corporate tax rate, effectively up to €125,000 can be deducted from an investors corporation tax bill. 

Although businesses generating corporate profits above €1m may be few these days, especially those investing in renewable energy, several wind farms and at least one Bioenergy project availed of this relief over the last number of years. The estimated cost to the exchequer is modest at €1m but can free up some capital to invest in renewable energy.

Irish Bioenergy Association Rejects Conclusions of ESRI Energy Review

A press release from IrBEA, the Irish Bioenergy Association, rejects the conclusions of the ESRI publication ‘A Review of Irish Energy Policy’. It ignores the considerable benefits that the development of a strong bioenergy sector in Ireland can bring while taking a very short term view on the issue of energy security.

The report, when addressing the role of renewable energy in the Irish energy mix, concentrates heavily on the role of onshore and offshore wind, while also referring to the potential of wave and tidal. The report pays only lip service to the benefits of heat and electricity produced from biomass sources.

The ESRI calls for the removal of the REFIT scheme for renewable technologies other than onshore wind. IrBEA categorically opposes such a proposal at a time when the implementation of the REFIT scheme is vital to the development of the emerging bioenergy sector in Ireland. The report refers to the intermittency of renewable technology as justification for the removal of this scheme – ignoring the fact that energy produced from biomass is a continuous secure supply. The report does not recognise the evident differences between the production of energy from biomass and the production of energy from other renewable sources.

The ESRI have missed an opportunity to delve deeper into the potential of the bioenergy sector and to recognise the very real benefits that this sector can bring to the Irish economy in terms of security of supply, sustainability and environmental benefits.

Merging of Coillte and Bord na Mona to Focus on Bioenergy

The formation of a new state company called "Bioenergy Ireland" has been included in the programme for government. On balance, this is a good idea, with the caveat that citizen’s interests be the top priority in shaping this new entity.

A part of the Fine Gael NewERA plans, the idea is to merge Bord na Mona and Coillte into a new State company to drive development of the bioenergy sector. Not much of the detail has been planned as yet. Fergus O’Dowd has been appointed Junior Minister in charge of delivering the project.

In the plan €900m is earmarked for this company over a 4-year period. A doubling of the current afforestation programme would be the biggest investment undertaken by this company, but also research into advanced transport biofuels and heat and power generation is planned, as well as the development of district heating and new biomass supply technologies.



Bord na Mona by Numbers



Bord na Mona manage large tracts of Ireland’s peatlands. It has evolved into a diverse group, but derives most of its revenue from extraction of peat for energy or horticultural markets. It is undergoing a transformation with a stated aim to be peat-free by 2025. Coillte manages the state’s forestry assets - 7% of Ireland’s land area. A merged entity would create a business with €600m of revenues, fixed assets of €1.6billion and a workforce of 3,000.

There would be cost-efficiencies through reduction in overheads. This would take a few years after a merger to bear fruit. Both companies have been in acquisition mode over the last decade. Coillte has added a substantial panel board side to their business. Bord na Mona entered the power generation sector through acquisition and has added on recycling and other businesses.

Coillte by numbers

The union would bring together key parts of the bioenergy sector – the forestry supply chain (Coillte) and a range of energy customers from power plant operators to home-owners (Bord na Mona).

There are clear overlaps in the business strategies of each group. For example, both now offer bioenergy supply contracts to commercial customers. In wind energy, each has a number of sites under development, and has sized up investments in the same businesses. An example was the renewable energy group SWS, eventually sold to another state body involved in the auction – Bord Gais. There is not much sense in state companies competing to acquire private companies.

Bringing these groups together would hopefully lead to some joined-up thinking in government about how their resources are best deployed to put citizens back to work.

Coillte control’s about half of Ireland’s forestry. Will the planned new afforestation invest only in public forestry? Private forests play a big part in developing and supporting local jobs and must not be squeezed out of the energy supply chain. The entry of a large state-backed Bioenergy business must not prejudice the interests of private SME’s.

Up to €900m is to be invested in the new business over four years. Some of this can be paid for through diversion of existing planned investments, such as the afforestation budget. Bord na Mona already has a research and development programme underway. Both companies have been successful in raising private finance and will continue with this. Raising capital should be more straight-forward for a larger merged entity.

Displacement of current public energy spending commitments (on imported fossil fuel) can be used to support renewable energy investment. Public buildings spend about €300m a year on fossil fuels for heating. It would be hugely beneficial to pump this money back into the local economy.

On a practical level, Coillte has a €100m shortfall on its pension obligations, a hurdle that will have to be negotiated as part of any merger.

Afforestation investment has a very long time horizon. The first harvest from a forest plantation comes about 20 years into its life. We have more pressing renewable energy targets to hit by 2020 which will not be delivered through additional forest planting. Bord na Mona has an even shorter horizon, requiring about 300,000 t of biomass by 2015, and to that end are now offering 20 year contracts to farmers to grow biomass energy crops.

There is a debate currently on privatisation of state assets. A merger would take privatisation off the agenda for now. There are activities within either group that would be non-strategic to a new bioenergy company and could be sold.

Bord na Mona has been a central part of the midlands economy for 75 years. Maintaining and increasing employment in the region must be a priority for the new entity. Stakeholders in popular tourist and leisure regions will campaign to ensure no adverse impact on amenity and recreational facilities maintained by either Coillte or Bord na Mona.

It’s too early to draw definitive conclusions on the merits of the merger with an absence of concrete information. There is a great opportunity to stimulate the bioenergy sector through public investment. It is a good idea, provided it is managed in a careful way and with Irish citizen’s interests at heart. It will be a difficult marriage to broker. A whole range of local and national considerations will influence the outcome.

Blood for biofuel - primetime feature on land grabbing in Honduras

There was a rather disturbing report on prime time last night (3rd March) about farmers being evicted from their land to make way for palm-oil and sugar cane plantations.
You can rewatch it here Minutes 25 to 35.

The Irish Bioenergy Association has put out a response as follows:

The issues presented in the Primetime feature only serve to highlight how it is necessary to ensure the production and use of biofuels in a fully sustainable manner. The Round Table on Sustainable Palm Oil (RSPO – http://www.rspo.org/) is a global organisation whose objective is to promote the use of sustainable palm oil through the development of credible schemes & standards and engagement with stakeholders. Clearly, the palm oil sector in Honduras is not operating to any such like scheme.

All biofuel in Ireland must comply with strict EU sustainability criteria for biofuels. In Ireland there is a Biofuel Obligations Scheme (BOS) in place since 2010, legislating that 4% of all road fuels are biofuel. The majority of this biofuel is imported as a pre-blended mix from oil refineries – a situation which has resulted in Irish biofuel producers being effectively excluded from the market. IrBEA is calling on the incoming government to revisit its policy in relation to biofuels to ensure that producers of sustainable Irish biofuels can access this market in a fair and equitable manner. This will give a much needed boost to this potential growth sector of the economy.

Renewable Energy or Electricity? Conference report

The national renewable energy summit took place in Dundalk last month. I was invited to represent the bioenergy sector in the energy debate.

I'll share my perspective on this conference, which was well organised and attended.

Eamon Ryan gave probably his last conference speech before his sudden departure as Minister for Energy. He defended his track record on energy, highlighting in particular the 15% growth in renewable energy in Ireland under his tenure and the advances in bringing electric vehicles to Ireland. He argued the case for continuity of energy policy across the political spectrum.

Policy aspirations he mentioned, which are now redundant unless acted on by his successors, included a new Refit for farm-based microgeneration. He acknowledged the outstanding Refit III delay and said it would be addressed.

Brian Motherway of SEAI spoke about recently launched bioenergy and ocean energy roadmaps. The contrast between the two is stark. While in the long term (2050), you can conclude that bioenergy will become the biggest single primary energy source, the roadmap contains scant data about the jobs and investment potential. This is partly due to the diverse nature of bioenergy technologies and difficulties modelling this. The ocean energy roadmap paints a picture of an exciting industry with 50,000 jobs potentially created by 2030 and up to 30 GW of ocean energy coming online by 2050.

Others spoke about electricity grid infrastructure and the difficulties for regulation of the grid with large amounts of unpredictable generators (mainly wind) coming online.

From the bioenergy perspective I was pleased to bring attention to the sector potential and need for policy focus. Two thirds of energy is used as heat or transport, and I asked those present to consider energy policy being lead according to end-use, not based primarily around electricity generation.

Biomass offers robust proven solutions for heat and transport. The 12% renewable heat target will be met mainly from bioenergy sources.

Notwithstanding the introducion of electric vehicles, the target to displace 10% of fossil fuels in transport by 2020 will be substantially met by biofuels. The example of bringing electric vehicles to Inis Mor in recent weeks is a good one. The truck that brought them to Galway port and the boat that transferred them to the island run on diesel.

It is easy for policy makers to overlook bioenergy for electricity as it will never deliver the impressive generation capacities expected from wind and ocean energy. I emphasised the following :

• Bioenergy technologies offer dispatchable (i.e. predicable) power output
• Many bioenergy technologies use waste as feedstock, allowing diversion from landfill
• Biomass feedstocks can be integrated in existing peat and coal-fired power stations
• Proven and reliable technology exists for handling biomass feedstocks

In terms of policy needs I said the carbon tax is a blunt but effective instrument, and in the absence of grant supports, this is the best way to stimulate the market for carbon-free bioenergy for heat and transport.
I stressed the need for additional work on the modelling of the socioeconomic contribution from bioenergy.

I also highlighted the need for simplified public procurement of bioheat through energy contracting.

I pointed out that our existing biofuel policy will not promote the use of Irish-origin biofuels